FOREX INFLOWS

WORKERS’ REMITTANCES UNDER THE RADAR

Will forex inflows from overseas workers withstand the ongoing global tensions?

Shiran Fernando presents an analysis 

Yet, this potential pressure was largely offset by a remarkable surge in workers’ remittances. In absolute terms, remittances grew by around 1.5 billion dollars in 2025 to reach US$ 8 billion for the year – that reflected a year-on-year increase of almost 23 percent.

The monthly average rose sharply to 673 million dollars in 2025 compared to US$ 548 million in the previous year. And inflows in January 2026 reached 751 million dollars, reinforcing the view that the new normal could be structurally higher than in the immediate post-crisis years.

So the key question now is whether this momentum can be sustained.

DIVERSIFICATION Sri Lanka has historically relied heavily on the Middle East for remittance inflows. In 2025, workers in the UAE, Kuwait, Saudi Arabia and Qatar together accounted for close to 40 percent of total remittances.

However, the composition of inflows is changing. While the UAE and Kuwait remained the top sources, remittances from countries such as the UK and Italy also recorded strong growth.

Inflows from the United Kingdom are partly linked to cross border foreign exchange transaction arrangements with some being diverted through financial centres. Nevertheless, the shift towards advanced economies is evident.

This trend reflects a structural change in migration patterns.

Last year, more than three-quarters (76%) of departures for foreign employment were in the skilled category. Higher skilled workers typically command better wages and remit larger sums.

Total departures surpassed 310,000 in 2025 with a monthly average of nearly 26,000. Although departures showed only a marginal decline compared to the preceding year, the quality of migration appears to have improved.

Regionally, in excess of 80 percent of migrant workers still headed to the Middle East, underscoring continued risk of concentration. However, inflows from non-core markets such as Australia, Israel, South Korea and parts of Europe are increasing. This diversification reduces vulnerability to shocks in any one region.

DEMOGRAPHICS This migration story also has a domestic dimension. The highest density of departures relative to population continues to come from districts such as Batticaloa, indicating localised dependence on overseas employment.

Moreover, the majority of migrant workers are in the 25-34 age bracket for males while a notable share of female migrant workers are above 50. These patterns suggest both opportunity and long-term labour market challenges.

While remittances strengthen the external sector in the short run, the longer-term impact of sustained skilled migration on domestic sectors such as tourism, financial services, healthcare and manufacturing can’t be ignored.

MACROECONOMICS Another key driver of the surge has been macroeconomic stabilisation. During the 2022 crisis, the divergence between official and informal exchange rates incentivised remittances through unofficial channels.

But as stability returned and exchange rate volatility narrowed, and moved from the sharp depreciation in 2022 to a more predictable band around Rs. 305-310 to the US Dollar, confidence in formal banking channels improved.

A portion of remittances is now received through global remittance channels and apps, which aren’t always captured in traditional country-wise breakdowns. The digitalisation of transfers and improved compliance frameworks have likely helped shift flows back into the formal system.

Freelancers and remote workers may also be contributing to higher inflows. As global demand for digi­tal services expands, Sri Lankan professionals working remotely for overseas clients are increasingly earning in foreign currency and boosting remittance type inflows without physical migration.

RESILIENCE Globally, remittances to low and middle income countries remained resilient in 2025 despite slower growth in advanced economies.

Labour shortages in ageing societies particularly in Europe and parts of East Asia have supported migrant wage growth. Meanwhile, Gulf economies benefitted from relatively stable energy revenues and a sustained demand for employment.

However, risks remain. Tighter immigration policies in parts of Europe, geopolitical tensions in the Middle East – including the Iran war – and a potential global economic slowdown could dampen future inflows.

Globally, remittance growth is expected to moderate after the post-pandemic rebound years, suggesting that Sri Lanka may not continue to enjoy annual growth rates of more than 20 percent indefinitely.

SUSTAINABILITY Last year, Sri Lanka’s external sector was cushioned by two pillars: remittances and tourism. Together, they helped offset rising import demand including vehicle imports.

If remittances stabilise above US$ 8 billion annually and tourism continues its recovery, the current account could remain manageable even with gradual import normalisation.

Yet, sustainability hinges on three factors.

Firstly, continued skilled migration and higher wages abroad; secondly, macroeconomic credibility at home by sustaining formal channel usage; and thirdly, global economic resilience particularly in the Middle East and Europe.

Remittances have provided critical breathing space to the economy. The challenge now is to leverage this window by strengthening domestic job creation, enhancing skills development, and channelling remittance savings into productive investments so that long-term growth doesn’t depend disproportionately on exporting labour.